Scripps Networks (SNI) Beats On Q3 Earnings, Revenues

Scripps Networks Interactive Inc. (NASDAQ:SNI) posted better-than-expected earnings and revenues in the third quarter of 2016. The company’s earnings (excluding special items) of $1.26 per share handily beat the Zacks Consensus Estimate of 93 cents. The bottom line also expanded 18.87% on a year-over-year basis due to lower interest expenses.

Moreover, the company’s third-quarter operating revenues of $803.1 million comfortably surpassed the Zacks Consensus Estimate of $793.5 million. The top line also grew 3.47% year over year. Strong TV advertising revenues in the U.S. as well as gains from foreign currency transactions contributed to the impressive quarterly results.

Third-quarter consolidated segment profits (on an adjusted basis) totaled $317.6 million, down 2% year over year. Quarterly operating income (on a reported basis) declined 4.8% year over year to approximately $258million.

At the end of the quarter, Scripps Networks had $329.6 million in cash & cash equivalents and $2,833 million of outstanding debt (less current portion) on its balance sheet compared with $223.4 million and $3,511.1 million, respectively, at the end of 2015. The debt-to-capitalization ratio was approximately 0.55% as against 0.66% at the end of 2015. The company reiterated its previously issued outlook for all the metrics.

Although concerned about the company’s high debt levels, we remain positive about its expansion efforts. Scripps Networks’ accord with AT&T (NYSE:T) in the third quarter deserves mention. The recent deal with Tribune Media Company (NYSE:T) is also encouraging. Free cash flow at the end of the first nine months of 2016 was almost $531.2 million compared with $470.9 million at the end of the first nine months of 2015.

Segmental Performance

U.S. Networks

Quarterly revenues came in at $686.3 million, up 3.8% year over year. Advertisement revenues climbed 6.6% year over year to $477.5 million. The impressive growth in segmental advertising revenues reflected the growing demand for the company’s lifestyle offerings in the advertising market. Distribution revenues dipped 2.5% year over year to $194.3 million, primarily due to erosion in subscriber base.

Other revenues increased 4.6% year over year to $14.5 million. Segmental (adjusted) profits came in at $327.3 million, down 1.4% year over year due to higher programing costs.

Brand-wise, HGTV, Food Network, Travel Channel, Cooking Channel, Digital Business and Other revenues improved 7%, 1.5%, 3.2, 2.8%, 0.5% and 20.4% year over year, respectively. However, DIY Network and Great American Country revenues dropped 2.5% and 5.4% respectively year over year.

International Networks

Quarterly total revenue of $123.2 million was up 3.8%. The upside was driven by the inclusion of TVN results. Segmental adjusted profits totaled $15 million, up 32%. The improvement came on the back of higher revenues.

Loss from the Corporate and Other segment widened to $24.7 million from $19.1 million a year ago.

Zacks Rank & A Stock to Consider

Currently, Scripps Networks has a Zacks Rank #4 (Sell). A better-ranked stock in the broader Consumer Discretionary sector is Nexstar Broadcasting Group (NYSE:T) , which sports a Zacks Rank #1 (Strong Buy). The stock has a healthy expected earnings per share growth rate (3–5 years) of 6.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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